In the short run, if the Reserve bank decreases interest rates, then consumption and investment_____, planned aggregate expenditure _____ are short-run equilibrium output_____.

A: increase, increases, increases
B: increase, increases, decreases
C: increase, decreases, decreases
D: decrease, decreases, increases
E: decrease, decreases, decreases

To answer this question, you need to understand the relationship between interest rates, consumption, investment, and short-run equilibrium output.

When the Reserve Bank decreases interest rates, it makes borrowing cheaper for businesses and individuals. This tends to stimulate consumption and investment.

1. Consumption: Lower interest rates reduce the cost of borrowing money for individuals, making it easier for them to make big purchases like houses, cars, or consumer goods. Therefore, when interest rates decrease, consumption tends to increase.

2. Investment: Lower interest rates also make it more attractive for businesses to borrow money to invest in new projects and expand their operations. This increased investment leads to economic growth. So, when interest rates decrease, investment tends to increase.

Now, let's consider the effect on planned aggregate expenditure (PAE) and short-run equilibrium output:

- Planned aggregate expenditure (PAE) represents the total spending in an economy, and it is determined by consumption and investment. Thus, if consumption and investment increase, PAE will also increase.

- Short-run equilibrium output refers to the level of economic output where aggregate demand (PAE) equals aggregate supply. In the short run, if PAE increases, it will push the output level to increase towards the new equilibrium.

So, putting it all together, the correct answer is:

A: Increase, increases, increases

The correct answer is D: decrease, decreases, increases.

When the Reserve bank decreases interest rates, it becomes cheaper for consumers and firms to borrow money. As a result, consumption and investment tend to decrease. This is because lower interest rates reduce the incentive to save and increase the incentive to borrow and spend.

As consumption and investment decrease, the planned aggregate expenditure also decreases. Planned aggregate expenditure is the sum of consumption, investment, government spending, and net exports.

In the short run, a decrease in consumption and investment leads to a decrease in aggregate expenditure, which in turn leads to a decrease in equilibrium output. This means that short-run equilibrium output decreases.